German parties agree to form a new government after months of drift in Europe's biggest economy

BERLIN (AP) — German election winner Friedrich Merz sealed a deal Wednesday to form a new government that aims to spur economic growth, ramp up defense spending, take a tougher approach to migration and catch up on long-neglected modernization.

The agreement paves the way for new leadership in the 27-nation European Union's most populous member, which has Europe's biggest economy. It follows months of political drift and weeks of negotiations as the continent faces uncertainty over the Trump administration's sweeping tariffs and its commitment to European allies' defense.

Merz is on track to become Germany’s new leader in early May, replacing outgoing Chancellor Olaf Scholz.

The 69-year-old's two-party Union bloc emerged as the strongest force from Germany’s election on Feb. 23. Merz turned to the Social Democrats, Scholz’s center-left party, to put together a coalition with a parliamentary majority.

'Germany is back on track'

Before Merz can take the helm, the coalition deal needs approval in a ballot of the Social Democrats’ membership and by a convention on April 28 of Merz’s Christian Democratic Union party. Once those hurdles are cleared, the lower house of parliament — in which the allies have 328 of the 630 seats — can elect him as chancellor.

Merz said the deal is “a very strong and clear signal to the people of our country, and also a clear signal to our partners in the European Union: Germany is getting a government that is capable of acting and will act strongly.”

Asked about his message to the U.S. president, Merz replied: “The key message to Donald Trump is, Germany is back on track. Germany will fulfill the obligations in terms of defense and Germany is willing to strengthen their own competitiveness.” He added, "We will bring the European Union forward.”

The prospective coalition embarked on one big project before even reaching a deal to govern together. Last month, it pushed plans through parliament to enable higher defense spending by loosening strict rules on incurring debt, and to set up a huge infrastructure fund that’s aimed at boosting the stagnant economy.

That was an about-turn for Merz, whose party had spoken out against running up new debt before the election without entirely closing the door to future changes to Germany’s self-imposed “debt brake.”

Economy and migration

Other measures in the agreement are more in line with what he campaigned for. The coalition aims to boost companies' investment and then cut corporate tax, make working overtime more attractive and cut electricity tax.

Merz, the opposition leader at the time, made reducing migration central to his election campaign. On Wednesday, he said the new government will suspend family reunions for many migrants, designate more “safe countries of origin,” launch a “return offensive” for rejected asylum-seekers and turn some people back at Germany's borders in consultation with neighbors.

It will also tighten a law passed by the outgoing government that eased the rules for gaining citizenship, scrapping the possibility for well-integrated applicants to get a German passport after three rather than five years of residence.

Throw out the fax machines

The new government will include a “digitization ministry” to modernize a country that still has a reputation for tangled bureaucracy and old-fashioned paperwork.

“Not everything has to be regulated down to the smallest detail,” said the Social Democrats' co-leader, Lars Klingbeil. “The diggers must work and the fax machines in our country must be thrown away. Our economy must grow.”

Merz said the coalition plans to reduce the size of the federal administration by 8% over its four-year term. But, referring to the United States' Department of Government Efficiency, he said it doesn't plan to do so by firing workers. “We're not hiring an Elon Musk here who will do it like they do in Washington,” he said. “We will do it ... sensibly, with a sense of proportion.”

Pressure from abroad and at home

The election took place seven months earlier than planned after Scholz’s unpopular coalition collapsed in November, three years into a term that was increasingly marred by infighting and widespread discontent. Germany, the 27-nation European Union’s most populous member, has been in political limbo since then.

The market turbulence caused by U.S. President Donald Trump’s announcement of sweeping tariffs added to pressure for Merz’s Union and the Social Democrats to bring their coalition talks to a conclusion. The tariffs threaten to add to the woes of an export-heavy economy that shrank for the past two years.

Another factor in the haste to reach an agreement was a decline for the Union in the opinion polls, showing support slipping from its election showing, while the far-right Alternative for Germany, which finished a strong second in February, gained as the political vacuum persisted.

“The political center in our country is in a position to solve the problems we face,” Merz said. Ministers will be named at a later date.